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DOCUMENT 10: GLOSSARY OF ECONOMIC AND INSTITUTIONAL TERMINOLOGY


Agriculture Sector Investment Programme (ASIP)

Ideally, an ASIP:

Objectives of ASIPs generally encompass:

The specific new features of ASIPs include:

Some lessons from experience:

Agriculture Negotiations in the WTO
see also
- WTO Developing Country Issues
- Doha Development Round
- Development Box

Up to 1995, GATT rules were largely ineffective in disciplining key aspects of agricultural trade. In particular, export and domestic subsidies came to dominate many areas of world agricultural trade, while the stricter disciplines on import restrictions were often flouted. The 1986-1994 Uruguay Round negotiations went a long way towards changing all that.

Agriculture trade is now within the multilateral trading system. The WTO Agriculture Agreement, together with individual countries’ commitments to reduce export subsidies, domestic support and tariffs on agricultural products were a significant first step towards reforming agricultural trade. The reform strikes a balance between agricultural trade liberalization and governments’ desire to pursue legitimate agricultural policy goals, including non-trade concerns. It has brought all agricultural products (as listed in the agreement) under more effective multilateral rules and commitments, including “tariff bindings” - WTO members have bound themselves to maximum tariffs on nearly all agricultural products, while many industrial tariffs remain unbound. Members also agreed to remove all non-tariff barriers (such as quota) and replace them by equivalent tariffs.

The 1995 Agreement stipulates that:

Support measures included in the AMS are the so-called Amber Box measures which have a direct impact on market and prices. They have to be reduced, while other measures such as measures to encourage agricultural and rural development, agricultural input subsidies to low-income or resource-poor producers in developing countries and support to producers in developing countries to encourage diversification from growing illicit narcotic crops fall within the so-called Green Box and do not need to be reduced.

For the first time, member governments are committed to reducing agricultural export subsidies and trade-distorting domestic support. They have agreed to prohibit subsidies that exceed negotiated limits for specific products. And the commitments to reduce domestic support are a major innovation and are unique to the agriculture sector.

The Uruguay Round agreement set up a framework of rules and started reductions in protection and trade-distorting support. But this was only the first phase of the reform. Article 20 of the Agriculture Agreement committed members to start negotiations on continuing the reform at the end of 1999 (or beginning of 2000). Those negotiations are now underway. They began using Article 20 as their basis. The November 2001 Doha Ministerial Declaration set a new mandate by making the objectives more explicit, building on the work carried out so far, and setting deadlines. It is now (early 2003) evident that these deadlines will be difficult to respect.

Balance of payments

This term is used in a number of senses, the two most common being the “market balance of payments” and the “accounting balance of payments”. The former signifies the ongoing relationship between the two flows of payments, one coming in and one going out, in which a country is continuously involved. The latter is a statistical statement summarizing all external transactions in which a country is involved over a given period of time, normally a year.

The form of presentation of the accounting balance of payments varies between countries, but most divide the balance of payments into three subaccounts, the sum of the three accounts being zero. According to IMF conventions:

(i) The current account is the first of three major divisions of the accounts. Its purpose is to summarize the value of exports and imports of goods and services. Within the current account is found the balance of trade, which refers to the balance of exports and imports of merchandise trade.

(ii) The capital account is the second major division. It is concerned with investment flows in and out of the country.

(iii) The monetary account is the third of the basic divisions, and includes changes in foreign exchange reserves, and other items which are functionally very close.

Often developing countries run current account deficits, and this in itself may not be a problem, if, for example, the country’s favourable development prospects are attracting net inflows of investment finance of a volume to match the deficit.

The balance of payments becomes problematic when the government finds that it has to balance the current account deficit by such measures as running down foreign exchange reserves, borrowing abroad for balance of payments (i.e. non-investment) purposes, rationing foreign exchange and raising tariffs. These measures are undesirable and will have adverse effects (such as building up foreign debt, reducing efficiency and raising inflation).

The monetary account shows how the net effect of the current and capital accounts are being financed. For example, early symptoms of “balance of payments difficulties” could be the run-down of foreign exchange reserves or borrowing abroad for balance of payments (i.e. non-investment) purposes.

Barter terms of trade

See “terms of trade”.

Budget deficit
see also
- Fiscal policy
- Pro-poor fiscal policy

Circumstances in which government current expenditure is in excess of current income. Government income is mainly tax receipts, but will also be adjusted by profits/losses of parastatal enterprises.

It is accepted that governments can run budget deficits to achieve their objectives in managing the economy, particularly when domestic demand is deficient. However, excessive budget deficits may cause domestic demand to expand to a point which causes inflation and/or balance of payments difficulties. Furthermore, budget deficits have to be financed by borrowing. If this borrowing is carried out within the economy, then this may raise interest rates, thus “crowding-out” some private sector investment; if the borrowing is external then international indebtedness is increased.

In most developing countries (excluding the very large economies of China and India) there is a high import content in final demand, and therefore deficit financing may easily result in balance of payments problems and the attendant difficulties described above. Frequently the IMF advice to governments is to take firm action to restrain budget deficits. As scope for tax increases may be limited, this can cause strong pressure to cut government spending.

Capacity utilization (under-utilization)

This is the ratio of actual to potential output in the economy. Thus capacity under-utilization is the ratio of unused capacity to total capacity.

Capacity underutilization may be the consequence of demand deficiency. However, in developing countries, it is often the result of shortages of foreign exchange, which means that there are insufficient supplies of raw materials and spare parts for machinery.

CSO (Civil Society Organization)

A term broadly equivalent to NGO (non-government organization), but increasingly preferred as it defines an organization by what it is, rather than what it is not. CSOs are organizations which are not part of the apparatus of the state, nor are they private businesses. CSO usually have the function of providing services and representation/advocacy for the concerns of different groups within society. They may be secular or religious in their basis.

CCM (Common Continental Market)

Grouping of 18 countries from the continent, created in 1992, which aims at increasing intra-continental trade. The CCM has established a Free Trade Agreement to which 9 members have already adhered (the objective is total removal of tariffs by 2005).

Common Market

See “Regional Economic Grouping/Community”.

Comparative advantage

The concept of comparative advantage is the basis of the case advanced for specialization in particular activities on the part of nations and for free trade.

Neoclassical theory emphasizes the importance of relative factor endowments in determining a country’s comparative advantage. (Thus countries relatively rich in labour and short of capital should have a comparative advantage in labour-intensive products). More recent theory has seen the neoclassical approach as too static and restrictive, and has emphasized the comparative advantage can be “made” as well as “given”. (For example, comparative advantage might be “made” by long historical experience of an industry, economies of scale and investment in education).

A pragmatic contemporary definition of comparative advantage would be that it is possessed by those activities which can compete and remain profitable in free markets (domestic and international) without any form of government protection.

CDF (Comprehensive Development Framework)
see also
- PRP (Poverty Reduction Strategies)
- PRSPs (Poverty Reduction Strategy Papers)

The World Bank’s Comprehensive Development Framework (CDF) was launched in 1999 to raise the priority given to anti-poverty strategies in international development cooperation.

The CDF emphasizes that anti-poverty strategies should be country-driven, with broad participation of civil society, elected institutions, key donor agencies and relevant financial institutions. The framework must relate to goals for poverty reduction.

Contract farming

Interlocking contract arrangements through which, in order to reduce risks and transaction costs, traders offer smallholders forward contracts for their harvested product and supply them with inputs on credit.

Cotonou Agreement

This is the partnership between the members of the African Caribbean and Pacific (ACP) Group of countries and the European Community and its member states signed in Cotonou, Benin, in June 2000, intended to run for 20 years. It replaces an earlier series of agreements known as the Lomé Conventions. Key aspects of the Cotonou Agreement include:

The economic development policies set by the Cotonou Agreement have the objective of fostering a dynamic, viable and competitive private sector. Policies to achieve this include:

Independent commentators on the Cotonou Agreement tend to agree that it represents a very substantial revision of the concepts of European aid policy. In particular, there are doubts about: (a) how to make aid instruments more effective in reducing poverty; (b) how to support non-state actors, i.e., the private sector and NGOs and to make a reality of “participation”; (c) whether the EU could make a much greater contribution to the ACP states simply by reforming its own agricultural policies.

Counter-factual analysis

A key concept in evaluating the effects of interventions. It is necessary to show that a change has been brought about by a particular intervention, rather than is simply correlated with it. This cannot be established by comparing the situation before and after the intervention: the correct question to ask if “with and without” (the intervention).

Thus an evaluation has to estimate something that by definition cannot be known, i.e., what would have happened had there been no policy or intervention.

Currency depreciation (appreciation)

See “Exchange Rate”.

Customs Union

See “Regional Economic Grouping/Community”.

Decentralization
see also
- Privatization

There are three key dimensions to decentralization:

  1. Political power: to what bodies will representatives be elected, what law-making powers will these bodies have, will they appoint an executive, and what powers will the executive have?

  2. Administrative power: for different functions (e.g. health, education, infrastructure, law and order) how will the administrative and service agencies of government be organized and controlled?

  3. Fiscal power: what powers of taxation and expenditure will rest with subnational authorities, and to what extent may they be structurally dependent on funds from the centre?

An effective process of decentralization requires reforms in all three dimensions. For example, the impact of political decentralization may be very limited where central government continues to control the administrative machinery of government and the agencies providing public services and where local government is dependent on grants from the centre, to which conditions may be attached.

A key factor defining the nature of decentralization is the process by which it comes about. There is likely to be a big difference between circumstances where decentralization has been a deliberate policy versus cases where there has been an erosion of capacity of central state, which nevertheless resists decentralization.

It is useful to distinguish the following five major forms:

Globally, decentralization seems to have considerable momentum, perhaps as a response to globalization and to local demands created by improved information flows. In some parts of the world decentralization may be a consequence of improved international security, which may cause central governments to feel less threatened by local demands for autonomy and create a moral climate in which resistance of autonomy is seen as oppressive. Sometimes decentralization is seen as a solution to ethnic problems (e.g., Uganda; creation of new states within Nigeria) as this may be a means to ensuring that each significant ethnic group gets some share of power.

In many developing countries decentralization has been pushed by external advisers/donors, although the World Development Report 1999 is agnostic as to whether decentralization should be a policy objective, suggesting that the process is endogenous, i.e., often a political reality. So the policy question is not whether it should happen but how to make it work.

Devaluation

See “Exchange Rate”.

Development Box
see also
- WTO
- Doha Development Round
- Food security

A group of developing countries have suggested that there should be a “Development Box” to allow these countries greater flexibility in agricultural policies. The Development Box would allow developing countries to take more measures to protect their agriculture from imports, particularly while rich country agriculture remains very highly protected. It is argued by advocates of the Development Box that poor country agriculture is a particularly sensitive sector, because it is highly labour intensive, and employment and incomes of poor producers could be undermined by import surges.

Developing countries are active in agriculture negotiations and several groups have put their names to negotiating proposals. In general, they reflect a diverse range of interests in the debate, and the distinctions are not always clear.

For example, the Cairns Group - which favours much greater liberalization in agricultural trade - is an alliance that cuts across the developed-developing country boundaries. Fourteen of its 17 members are developing countries. Like most WTO members, the Cairns Group would also like to see developing countries given some kind of “special and differential” treatment to take account of their needs.

Several developing countries have submitted proposals that would lead to clearly separate rules for developed and developing countries. Some proposals are jointly sponsored, the one with the most sponsors coming from the African Group.

Opinions differ on how to deal with the issue of food security. Most countries say this is best handled through a combination of means, but they vary in the emphasis they give to various methods. These include: trade (importing, together with exporting to finance imports); stockholding; and domestic production (which can require some support and protection in developing countries). They differ on whether liberalization and market orientation should be the main route because distortions jeopardize food security (countries advocating substantial liberalization take this view); whether market failings and particular circumstances such as an adverse climate require more emphasis on intervention (importing developing countries, some developed countries favouring continued protection and support); or whether a gradual approach towards liberalization is best (some European countries).

“Dollar a day” poverty
see also
- Poverty line - absolute
- Social exclusion

An absolute poverty line introduced by the World Bank in 1990 to estimate global poverty. The dollar amount is revised over time to keep pace with inflation. Technically, in the year 2003 it now stands at $1.08 in 1996 prices. This is converted into local currency using PPP exchange rates.

Sometimes this is referred to as extreme poverty.

This concept has however been increasingly criticized as uni-dimensional and not giving a realistic picture of the multifaceted dimensions of poverty. The main critique of this concept has been Dr Amartya K. Sen, a Nobel Price winner, who argues that poverty is defined by low entitlements defined by property rights on what is marketed (including labour) but also extended property rights based on social relations, gifts and public goods.

Doha Development Round
see also
- WTO
- Development Box

The Doha Ministerial Declaration of November 2001 included the following statement:

“We recall the long-term objective referred to in the Agreement to establish a fair and market-oriented trading system through a programme of fundamental reform encompassing strengthened rules and specific commitments on support and protection in order to correct and prevent restrictions and distortions in world agricultural markets. Building on the work carried out to date and without prejudging the outcome of the negotiations we commit ourselves to comprehensive negotiations aimed at:

We agree that special and differential treatment for developing countries shall be an integral part of all elements of the negotiations and shall be embodied in the schedules of concessions and commitments and as appropriate in the rules and disciplines to be negotiated, so as to be operationally effective and to enable developing countries to effectively take account of their development needs, including food security and rural development. We take note of the non-trade concerns reflected in the negotiating proposals submitted by Members and confirm that non-trade concerns will be taken into account in the negotiations as provided for in the Agreement on Agriculture.”

In summary: agriculture is now part of the single undertaking in which virtually all the linked negotiations are to end by 1 January 2005. The declaration reconfirms the long-term objective already agreed in Article 20: to establish a fair and market-oriented trading system through a programme of fundamental reform. The programme encompasses strengthened rules, and specific commitments on government support and protection for agriculture. The purpose is to correct and prevent restrictions and distortions in world agricultural markets.

Economic protection

Policy instruments used by governments may cause incentives to producers of a particular good or service to be stronger or weaker than would be the case if there were no intervention. Examples of policy instruments include tariffs (taxes on imports), quota on imports, subsidies to inputs and subsidies to outputs. Also macroeconomic intervention by governments, e.g., in interest rates or the exchange rate (see below), may influence producers’ costs and/or output prices.

In cases where the application of policy instruments or macroeconomic interventions increases incentives to producers (by enhancing profitability), the effect of the policy instrument is known as “protection”. If the effect were to reduce profitability, then this would be “de-protection” (or “negative protection”).

Frequently, producers find that their profitability is affected by a number of policy instruments and macroeconomic interventions, individual instruments sometimes having contradictory effects. (For example, an over-valued exchange rate will depress profitability for producers of traded goods - see below under exchange rate - but the government may seek to compensate for this with input subsidies). Economists have developed techniques which attempt to measure the effects of individual policy instruments, and to sum up their overall influence. Well known is the effective protection coefficient (EPC): if this is greater than one, then the overall effect of policies is to protect the producer, and if the EPC is less than one, then the producer suffers negative protection.

Economic liberalization

The doctrine of economic liberalism advocates the greatest possible use of markets and of the forces of competition to coordinate economic activity. It allows the state only those activities which the market cannot perform - e.g. the provision of public goods - or those which are necessary to establish the framework within which the private enterprise economy and markets can operate efficiently, e.g., a legal framework for property and contract and the adoption of such policies as anti-monopoly legislation.

The 1980s and early 1990s have seen a swing towards a greater degree of economic liberalism in the management of many economies, including those of developing countries, formerly centrally planned economies and OECD economies. The process of economic liberalization requires a series of specific measures applied in specific categories of markets (e.g. input markets, output markets, financial markets etc). These measures include the removal of price controls, privatization of parastatal organizations, measures to break-up monopolies and to promote competition. Generally, the emphasis is on government as a regulator of markets, not as a direct provider of services.

While economic liberalism acknowledges that some goods and services should continue to be supplied by the state, there is often considerable disagreement between experts as to where the line should be drawn between the state and the private sector. For example, in developing country agriculture, it is often argued that the state should continue to be involved in the provision of research and extension to small farmers, on the grounds that if this was left to the private sector, supply would be suboptimal.

Economic Union

See “Regional Economic Grouping/Community”.

ESAF (Enhanced Structural Adjustment Facility)

An International Monetary Fund (IMF) soft-loan facility introduced in the later 1980s for countries undergoing structural adjustment, and since 1997 superseded by PRGFs. ESAFs were a new departure for the IMF, because most of its loan facilities are made available short term and on near-commercial terms. (See description of the IMF below).

Exchange rate
(for real exchange rate see below under “real”)

The exchange rate is the price of a currency in terms of another currency. In the case of fully convertible currencies - i.e., currencies for which the government does not place restrictions on commercial transactions and attempt to set the price of the national currency in terms of foreign exchange - the exchange rate is determined by supply and demand conditions in the market in which it is traded, i.e., the foreign exchange market. More fundamentally, the supply and demand conditions are determined by whether a country’s basic balance of payments position is in surplus or deficit. Another important influence is relative interest rates: other things being equal, funds will be attracted into currencies offering higher interest rates.

In countries in which currencies are not fully convertible - such as Southland until 1993 - the government may try to maintain a fixed exchange rate through such measures as rationing demand for foreign exchange, and penalizing individuals who undertake transactions which are not through government approved channels. Such systems often fail to prevent the emergence of parallel markets and what amounts to a dual exchange rate system. Where the parallel market is illegal, transactions costs are high, and economic inefficiency is generated. Some drawbacks of foreign exchange rationing are noted above under “capacity utilization”.

When the exchange rate changes (either through the market or government adjustment) so that more units of domestic currency are offered per unit of foreign exchange (say $US) then this is known as a “devaluation” or “depreciation”. (the converse movement is a “revaluation” or “appreciation”).

Devaluation has the effect of raising the price in the domestic currency of those goods and services which are internationally tradable. Devaluation does not have a direct effect on the domestic currency prices of goods and services which are not internationally tradable (this non-tradability being due either to their nature or to government policy). Thus, other things being equal, devaluation raises the relative price of “tradables” to “non-tradables”, creating incentives to expand production of tradables and to contract production of non-tradables. To the extent that this is achieved, the balance of payments will improve, because the increased supply of tradables will - if exported - earn foreign exchange or - if replacing imported tradables - save foreign exchange.

Broadly speaking, devaluation should be favourable to agriculture, because most agricultural output is tradable. However, it will have differential effects across the agriculture sector, particularly favouring agricultural systems based on production technologies which make relatively intensive use of “domestic resources” of land and labour and relatively frugal use of traded inputs (such as machinery, energy and fertilizer). Thus highly input-intensive agricultural production systems may well benefit less from devaluation than those which are labour or land intensive.

Finally, devaluation is inflationary, because it directly raises the domestic price of traded goods and services, and these price increases may well be transmitted into the non-traded sector. The extent to which inflation in non-traded goods and services occurs will be influenced by the government’s fiscal and monetary stance. In the period following a devaluation, tight fiscal and monetary policies will restrain inflationary pressures in the non-traded sector. It is for this reason that economic stabilization programmes often involved devaluation, followed by a period of austerity in government expenditure and tight monetary policy (see “monetary policy” below).

If a government fails to follow a devaluation with effective anti-inflationary policies, then the competitive advantage which the devaluation has gained for the country’s tradable sector may be quickly eroded, requiring another devaluation which will temporarily restore competitiveness but at the cost of generating further inflation.

The danger here is of a spiral of devaluation and inflation feeding on each other. The importance of avoiding an inflationary spiral explains why IMF-supported stabilization programmes often seem at first sight to be apparently needlessly destructive of useful public services.

Extreme poverty
see also
- Poverty lines
- Social exclusion

Absolute poverty lines are based on the cost of purchasing a basket of good and services. This basket may consist only of food, for instance, representing the amount of calories sufficient for survival. A food-only basket is often used as a lower poverty line and food plus other items (eg: clothing and shelter) as an upper poverty line. Often, those living below the lower poverty line are said to be living in extreme poverty.

Fiscal policy
see also
- Pro poor fiscal policy

Generally refers to policy on government taxation and government expenditure, the net outcome of which is in most cases the budget deficit (see above).

FAO (Food and Agriculture Organization of the United Nations)
see also
- Special Programme for Food Security (SPFS)

Purpose
(i.e. the preamble to the FAO Constitution of 1945)

The Nations accepting this Constitution, being determined to promote the common welfare by furthering separate and collective action on their part for the purpose of:

hereby establish the Food and Agriculture Organization of the United Nations, hereinafter referred to as the “Organization” through which Members will report to one another on the measures taken and the progress achieved in the field of action set forth above”.

Mission
(Strategic Framework, 2000-2015 - abbreviated to focus on essential wording):

“To help to build a food-secure world for present and future generations.” elaborated as: “in the coming 15 years FAO will assist Members in:

Vision (Strategic Framework, 2000-2015 - abbreviated to focus on essential wording)

Food security
see also
- Food Security and WTO Agenda in discussion above under “Development Box”
- Special Programme for Food Security (SPFS)

This term can be interpreted in many ways, but a useful definition is access by all people at all times to enough food for an active and healthy life. Its essential elements are the availability of food and the ability to acquire it in time (access and stability), as well as its effective nutritional utilization (health, safe water, etc.). Food insecurity, in turn, is the lack of access to enough food.

There are two kinds of food insecurity: chronic and transitory:

Chronic food insecurity is a continuously inadequate diet caused by the inability to acquire food. It affects households that persistently lack the ability either to buy enough food or to produce their own.

Transitory food insecurity is a temporary decline in a household’s access to enough food. It results from instability in food prices, food production or household incomes - and in its worst form it produces famines.

Forex Bureau

Private official foreign-exchange agent.

Free Trade Area

See “Regional Economic Grouping/Community”.

GDP deflator

See “price indices”.

Global Public Goods (including pro-poor public goods)
see also
- public goods

Global public goods (GPGs) are those demanded beyond the boundaries of individual states.

As with other categories of goods, demand for particular GPGs varies with wealth, and it is helpful to distinguish between inclusive public goods (iGPGs), which are of value to rich and poor alike, and pro-poor public goods (ppGPGs), which are primarily valued in the poorer parts of the world, where there is very limited capacity to pay. To ensure that ODA is used for the purposes intended, a useful principle is that richer countries should finance iGPGs from non-ODA budgets, while ppGPGs are candidates for ODA funding. In practice, iGPGs and ppGPGs may originate from the same supplier (and will differ by degrees of emphasis) so there are often grounds for financing GPG supply from a particular organization through a blend of non-ODA and ODA resources. The latter source should have the aim of increasing the weight given to the demands of the poor for GPGs.

GPGs necessarily require inter-governmental action for their provision, in contrast to merit goods, which should be largely domestically financed (while there is a case for selective use of ODA to supplement domestic financing of certain merit goods in poor countries). The distinction between GPGs and merit goods is critical, because effective inter-governmental collaboration for the provision of services is very difficult to achieve, especially at the global level (regional intergovernmental collaboration can be tolerably effective, especially in richer parts of the world). On grounds of efficiency in resource use, the necessarily cumbersome machinery of inter-governmental collaboration in service provision should be restricted to activities with strong GPG characteristics. In contrast, financing and supervision of merit goods is best undertaken by national and local governments, with country-level ODA assisting poor countries with the management and resources, where appropriate accountability may be easier to achieve.

Governance and government
see also
- Pro-poor governance and
- Institutional reforms

“Governance” refers to the rules, institutions and systems of the state operating at national and local levels. It also refers to how the state interacts with citizens, private businesses and civil society organizations.

“Government” refers more narrowly to the executive function at central and local levels.

Government (or public) expenditure

Broadly this is expenditure by national and local government agencies, as distinct from private individuals, organizations or firms. Many developing countries present their public expenditure accounts in such a way as to distinguish what is known as recurrent (or consumption) expenditure from development (or investment or capital expenditure):

Recurrent (or consumption) expenditure is the operational costs of running government services, including payments of subsidies and transfers to individuals.

Development spending (or investment or capital expenditure) is government investment expenditure, for example on roads, schools or other government buildings. The recurrent costs of operating these investments are supposed to be incorporated in the recurrent budget.

In practice, the distinction between recurrent and development spending can be difficult to make. Some activities of a recurrent nature often slip into the development account.

Generally, aid agencies have been unwilling to finance a country’s recurrent expenditure, on the theory that this will lead to a level of expenditure which cannot be supported from the recipient country’s own tax receipts, and is therefore unsustainable if the donor agency were to withdraw at some point in the future. Development agencies prefer to fund public sector investment projects for a number of reasons, including:

(i) The time horizon of an investment project - say 3 to 5 years - is not open-ended and corresponds to the aid agencies’ own availability of funds;

(ii) In theory, investment projects will promote economic growth, allowing higher levels of government tax receipts, which will in turn support the expanded public sector.

Consequently, in developing countries, in normal circumstances, there has been little aid agency funding of government recurrent expenditure, while sometimes as much as 80 - 90 percent of public investment expenditure has been aid-financed (the figure is less in middle-income developing countries and in low-income countries with important mineral resources).

However, this has somewhat changed in recent times, where the so-called “Sector Investment Programmes” have also included regular activities of various organizations operating in the agriculture sector, thus covering some recurrent expenditure funded in part by donor resources (see ASIP).

In the case of Southland - typical of many developing countries during the 1980s to early 2000s - the ratio of government recurrent to investment spending has risen, a development which some observers believe to be undesirable. There may be a number of factors behind this: (i) the expansion of the recurrent budget, driven in large part by aid-financed public investment projects; (ii) the contraction of the development budget, due to a shortage of government expenditure and “donor fatigue” - a perception that the quality of previous aid-financed investments had been low and, therefore, a reluctance to repeat them; (iii) a partial switch by development agencies towards “structural adjustment” funding (see below) which supports the country’s general import capacity.

In conclusion, countries such as Southland presently find that funds for government investment are very scarce, the public infrastructure is inadequately maintained and there are severely limited resources for expanding the public service infrastructure to meet the needs of the population. In such circumstances, the recurrent budget may come under searching scrutiny, with questions being asked about “value-for-money”, because reduction in recurrent expenditure may allow scope to protect or even expand public investment expenditure.

Gross government investment spending

See “government expenditure”.

HDI (Human Development Index)

An index developed by the United Nations Development Programme based on a combination of life expectancy, educational attainment and GDP per caput.

HIPC Debt Initiative
see also
· IDA
· PRGF
· PRSP
· Naples Terms

This was proposed by the World Bank and IMF and agreed in late 1996. It represents a comprehensive approach to the reduction of the debts of the poorest, most heavily indebted countries, and a major step towards placing debt relief within the overall framework of poverty reduction. A review of progress in 1999 resulted in an enhanced framework, which is claimed to be “deeper, broader and faster”. The information below relates to the enhanced framework.

To be classified as a Highly Indebted Poorer Country (HIPC), countries have to satisfy two characteristics:

A debt sustainability analysis is conducted by the government with the staffs of the World Bank and IMF to determine whether the country faces an unsustainable debt situation after the application of the traditional relief mechanisms.

To apply the enhanced HIPC terms, all creditors share the costs of assistance on the basis of broad and equitable burden sharing. The World Bank and IMF make some interim assistance available at the “decision point”, to be followed by further assistance at a later “completion point”. At the “completion point” the World Bank and the IMF will have agreed the borrower country’s full PRSP.

As of early 2003, 26 countries have reached the “decision point” and are receiving relief that will amount over time to more than $40 billion out of a total of 43 countries categorized as HIPC.

It should be noted that NGOs tend to be critical of the fact that the World Bank and IMF have exclusive power to agree the PRSP.

IDA (International Development Association)

The International Development Association, IDA, is the World Bank’s concessional lending window. It provides long-term loans at zero interest to the poorest of the developing countries. IDA helps build the human capital, policies, institutions, and physical infrastructure that these countries urgently need to achieve faster, environmentally sustainable growth. IDA's goal is to reduce disparities across and within countries, especially in access to primary education, basic health, and water supply and sanitation and to bring more people into the mainstream by raising their productivity.

IDT (International Development Targets)
see also
- MDGs “Millennium Goals”

The IDTs were set at a meeting convened by the Development Assistance Committee (DAC) of the Organization for Economic Cooperation and Development (OECD) in Paris in 1996. They are based on commitments made at a series of United Nations global conferences held over the past decade, and grounded in an international consensus that includes the World bank and the IMF. The IDTs are the foundation of international commitment to poverty reduction, and they reflect a view that extreme poverty must be tackled by improving incomes also by making real improvements in the quality of peoples’ daily lives. The IDTs are:

Economic well being

Social and human development

Environmental sustainability and regeneration

The rational for goals and targets is that they:

IMF
see also
- PRGFs and ESAFs

The IMF is part of the United Nations system, but is not an aid agency. Its main purposes are to encourage international monetary cooperation, facilitate the expansion and balanced growth of international trade, assist member countries in correcting balance of payments deficits and promote foreign exchange stability.

When countries join the IMF a subscription fee is paid, known as a “quota”, 75 percent of which is in the national currency, and 25 percent in internationally convertible currencies (known as “hard currencies”).

To assist members with balance of payments difficulties, the IMF allows members to borrow from it with varying degrees of ease. A first borrowing - which is without strings - is where a country calls for the return of 25 percent of its quota in hard currency. After this, it may borrow the “first credit tranche” with virtually no strings. Three further tranches may be borrowed in three subsequent years, each tranche being 25 percent of quota in hard currency. Under an “enlarged access policy” introduced in 1981, developing countries which implement IMF-approved plans for economic reform can borrow a further 90 percent of quota annually for three years. Since then, it has been agreed that exceptions can be made, and that countries with exceptional needs and which demonstrate a strong adjustment effort, may borrow up to 110 percent of quota annually for three years.

Obtaining the second, third and fourth credit tranches and money from the “enlarged access” policy involves an ever-greater degree of IMF supervision, including substantial consultation with officials of the IMF and visits by financial teams. IMF approval of the economic policies of a country in economic difficulties is important, not only to gain access to IMF resources, but because this often “unlocks” funds from other sources - from aid agencies and private investors - because it is regarded as a “seal of approval” on the country’s economic reform efforts.

Typically, IMF conditions for borrowing will be:

(i) Cutbacks in budget deficits, particularly targeting reduction in subsidies;

(ii) Reduction in the rate of expansion of the money supply (the instrument used to achieve this is often higher real interest rates);

(iii) Devaluation - where the exchange rate is overvalued;

(iv) Some dismantling of economic protection (see below for definition) together with better incentives for exports.

Often measures (i), (ii) and (iii) comprise a stabilization programme (see below for definition).

Generally, IMF loans have to be repaid over three to five years, in hard currency, at near-market interest rates; this way the IMF is not usually described as an aid agency. However, with the introduction of ESAFs (see above), now replaced by PRGFs, the IMF has entered the business of development aid and now has a genuinely “soft” long-term funding facility to assist developing countries undergoing longer term programmes of economic reform and poverty reduction.

Informal sector

The “informal sector” is an imprecise concept, nevertheless widely used in writing about development. It came into the literature to describe urban economic activities that were outside employment with larger-scale and/or better capitalized organizations (often described as the “modern” or “formal” sector). Thus the informal sector was conceived of as employment in very small businesses and various forms of self employment in activities which require very little capital. It is assumed that most informal sector occupations yield incomes which are lower and more precarious than employment in the formal sector, and that informal sector workers do not obtain employment-linked health, housing and social security benefits.

The formal/informal distinction is less commonly used in rural areas: peasant farmers have some “informal sector” characteristics, but some peasants may own valuable land and non-land assets. However, in rural areas and neighbouring small towns, in situations where land is scarce, there may be many landless and near-landless people providing services, including agricultural labour, whose employment and income characteristics are similar to those of urban informal sector workers.

Institutional reforms
see also
- good governance

The prosperity of a society, its efficiency and its capacity to adapt to an ever moving environment is strongly linked not only to the quality of human (education) and natural resources but also to the quality of its institutions.

The essential role of institutions and organizations is to:

Hence policies to achieve improved performance from institutions are critical for economic and social development.

The new institutional economics (NIE) distinguishes institutions from organizations. The former are the “rules of the game” and the latter the “players of the game”. Nonetheless, organizations will have specific institutional characteristics embedded in them, and these contribute to the overall institutional framework. There are macro, meso and micro (local) level institutions. Therefore, “institutional reforms” seek to work at these three levels.

NIE recognizes a further distinction between formal and informal institutions, and that the latter may be persistent and equally, if not more influential, in determining both the performance of the economy as a whole and the feasibility and outcome of individual contractual arrangements.

NIE argues that particular institutions may be development enhancing, if they are crafted to facilitate trade and exchange, or development retarding, if they are crafted to control and limit trade and exchange. Obviously, institutional reforms should favour the emergence of development-enhancing institutions.

Institutional change is strongly influenced by the interests of elites, as perceived through the ideas by which they interpret their economic interests. In some cases, elites tend to create transactions facilitating institutions because they see their interests being served by the expansion of trade. That this is also in the interests of other less influential groups is incidental, i.e., in this case, poorer and less influential groups in the economy may benefit as free-riders from actions taken by the elites in their own self-interests. In other cases, elites may see that their self interest lies principally in rent-seeking, in which case they will support institutions which restrict trade and exchange.

“Path dependency” is a key idea of Douglas North, a Nobel-Prize winning new institutional economist. For a particular political economy, there has been over time a co-evolution of institutions, economic structures and elite interests, which defines a path from which it is hard to break out. In North’s view, much depends on how sections of the national elites perceive their self-interests, perceptions which will have been conditioned by their historical experience.

Institutions that play a role in rural livelihoods: those marked (*) may be targeted for institutional reform

state administration*
the family
marriage
caste system *
land property rights *
rules, laws, constitutions *
the judicial system*
the household
labour associations*
migrant associations
state service provision*
NGO/CSO service provision*
local government*
kinship exchange networks
markets*
contract arrangements*
private firms
credit unions
users associations (e.g. for water, forests etc)*
schools

Interim PRSPs (I-PRSPs)
see also
- PRSP (Poverty Reduction Strategy Paper)
- Pro-poor fiscal policy
- SWAPs

A paper on the route towards a full PRSP approved by the World Bank and IMF and relevant as a stage in HIPC debt relief process.

Recommendations from the World bank and IMF are that I-PRSPs must include:

International terms of trade

See “terms of trade”.

Liberalization

See “economic liberalization”.

Macro-economics

Macroeconomics is the study of the behaviour of the economy as a whole. The economy is disaggregated into what are believed to be broadly homogenous categories, known as macroeconomic aggregates (e.g. “investment”and “exports”). The behaviour of these aggregates is integrated to provide a model of the behaviour of the whole economy. While hypotheses about the behaviour of individual aggregates are largely derived from microeconomics, the distinct contribution of macroeconomics is that its models attempt to discover how changes in one sector or time period will feedback to other sectors and subsequent time periods.

Macro-variables are variables in which changes will have feedback effects in the economy which are so large and pervasive that they cannot be ignored in policy analysis. Examples of macro-variables are the exchange rate, the interest rate and the budget deficit. Often, policy relating to macro-variables is called macroeconomic policy, this being distinct from policy at the sectoral or micro level.

Micro-economics

The term is used to describe those parts of economic analysis whose concern is the behaviour of individual units, in particular consumers and firms, rather than the aggregates which are the subject of macroeconomic analysis. Microeconomic matters in the agriculture and food system would be the behaviour of individual farmers, processors and consumers, and the characteristics of the various markets in which the transactions of the agriculture and food sector take place.

Macro-economic effects are of course the result of the aggregation of micro-economic changes. Economists nowadays tend to less and less make a distinction between “macro” and “micro” particularly since progress in our capacity to simulate economic change allows to see the immediate “macro” effect of changes occurring at the “micro” level.

MDGs (Millennium Development Goals)
see also
- IDTs

The Millennium Development Goals were adopted by 149 World leaders - and 191 countries - at the Millenium Summit held in New York on 6-8 September 2000, i.e., subsequent to the agreement of the IDTs. The MDGs embrace most of the IDTs and add additional poverty concerns related to hunger, safe water, disease, AIDS orphans and urban poverty. Specifically, the Millennium Development Goals (1990 - 2015) are:

1. Eradicate extreme poverty and hunger

a. halve the proportion of people with less than a dollar a day
b. halve the proportion of people who suffer from hunger

2. Achieve universal primary education

a. ensure that boys and girls alike complete primary schooling

3. Promote gender equality and empower women

a. Eliminate gender disparity at all levels of education

4. Reduce child mortality

a. Reduce by two-thirds the under-five mortality rate

5. Improve maternal health

a. Reduce by three-quarters the maternal mortality rate

6. Combat HIV/AIDS, malaria and other diseases

a. Reverse the spread of HIV/AIDS

7. Ensure environmental sustainability

a. Integrate sustainable development into country policies and reverse loss of environmental resources

b. Halve the proportion of people without access to potable water

c. Significantly improve the lives of at least 100 million slum dwellers

8. Develop a global partnership for development

a. Raise official development assistance
b. Expand market access
c. Encourage debt sustainability

The rational for goals and targets is that they:

Monetary policy

This refers to the use of policy instruments which directly affect the monetary system, and which attempt to achieve the broad objectives of policy, such as stable prices, growth in incomes and employment, and a satisfactory balance of payments. Instruments of monetary policy include intervention to change the structure and level of interest rates and direct controls on bank lending through, for example, lending ceilings or quota for individual banks.

Often, the immediate objective of these instruments of monetary policy is to influence the money supply, in one or other of its definitions, in the belief that the level of money supply has a powerful influence over the level of prices.

Monetary Union

See “Regional Economic Grouping/Community”.

Naples Terms
see also
- Paris Club

These are concessional debt reduction terms for low-income countries approved by the Paris Club in December 1994 and applied on a case by case basis. Countries can receive a reduction of eligible external debt of up to 67 percent in Net Present Value Terms.

National Strategies for Food Security and Agricultural Development

Developing countries committed to attaining the World Food Summit goal of halving the number of undernourished people by 2015 prepared - with FAO’s technical support - a National Strategy for Food Security and Agricultural Development (NSFSAD), which has as its objective the achievement of the goal within its borders. The NSFSAD promotes an alliance of all entities committed to reduce hunger and address the many facets of national and household-level food security and seeks to boost investment and policy reform in favour of food security.

The NSFSAD focuses on food production, trade and access to food, but also interfaces with programmes and activities in poverty reduction, nutrition, health, education, and other related sectors. It establishes the needs for investment, institutional reform and policy adjustment and includes a resources mobilization strategy.

In most countries a central element of the NSFSAD is a programme to empower poor rural communities to attain higher levels of food security. The objective is to reach all rural communities and thereby also to have a positive effect on the national food security situation and poverty reduction.

These national strategies provide the basis for regional food security strategies, prepared by regional economic groupings with the technical cooperation of FAO. At the regional level, the approach focuses on intra-regional and global trade facilitation, harmonization of policies, surveillance and control of transboundary pests and diseases, implementation of food quality and safety standards and support to national -programmes for food security.

During the 2002 World Food Summit: five years later, countries committed themselves to review and update their national strategies, and FAO has initiated a programme to support them in this process.

Nominal terms

See “real terms”.

Outsourcing
see also
- Privatization

Outsourcing (by the public sector) refers to the process of delegating functions previously carried out by the public sector to independent contractors. These contractors are usually private companies, but less commonly could be not-for-profit companies. The figure above shows a spectrum of options from full provision in the public sector to full privatization. Along this spectrum, rights and delegation move from the public to private sectors, while the commitment by the private sector increases.

OUTSOURCING: TYPES OF DELEGATED MANAGEMENT AND THEIR CHARACTERISTICS

Some advantages and disadvantages of outsourcing

Advantages

Disadvantages

1. Savings

1. Difficult to select best supplier

2. Access to specific expertise

2. Loss of control over the activity contracted out

3. Alleviation of constraints arising from collective agreements

3. Negative impact on labour relations

4. Improved ability to adapt to change

4. Irreversibility of the decision to contract out

5. Reduction of payroll

5. Difficult to monitor the contract

Paris Club

An ad hoc group of creditor governments including Austria, Australia, Canada, France, Germany, Italy, Japan, United Kingdom, USA, Sweden, the Netherlands, Belgium and Norway, among others.

Policy Framework Paper (PFP)

This is the title which was given, prior to the development of the CDF, to a document prepared by the authorities of a country undergoing economic policy reform and who wishes to receive policy-based loans, credits and grants in support of their economic programme. The development of a PFP acceptable to the World Bank and the IMF was a condition for release of an IMF ESAF facility (see above).

PPA (Participatory Poverty Assessment)
see also
- Social exclusion

This refers to a broad approach based on asking poor people what they themselves mean by poverty. The approach is explicitly subjective, and is usually based on a participatory assessment or structured discussion groups. PPAs bring out the less easy to quantify aspects of poverty, e.g., issues of dignity, self-respect, powerlessness, and ability to cope. They may also illuminate how people manage their livelihoods, which is useful for development of integrated strategies for livelihood betterment.

PPAs are often based on a combination of different methods, an approach which is called triangulation. This allows results obtained from one method to be cross-checked with those from other methods, helping to identify implausible findings.

In more detail, a poverty assessment is a tool that:

PPA make use of group exercise tools, which include:

Public goods
see also
- Global public goods

Public goods (PGs) have two essential properties: they are non-excludable (all can access the good free of charge) and non-rival (consumption by one does not reduce availability to others). In more detail:

There is a common confusion in the use of the term public good, particularly by non-specialists, where it is used to indicate a good or service that is provided by the state or public sector. Some services provided by the state are public goods in the technical sense used above, but some are services, such as primary education, provided by the state because it is felt important to individual and state welfare that all citizens should have access to these services. Primary education is neither non-rival nor non-excludable and should more correctly be termed a “merit good”.

Part of the interest in PGs as a tool for policy analysis lies in the fact that there is no incentive for private provision, so PGs represent a form of market failure which needs to be addressed by one of two routes: (a) provision financed and supervized by government or (b) technological or institutional changes which create incentives for private provision (i.e. which turn PGs into private goods). In reality, there are few examples of pure PGs; commonly discussions focus on the extent to which goods may have “strong PG characteristics”.

Some experts consider that it is useful to distinguish between the provision of a good or service and its production. The actual ‘production’ of a good or service -the combination of resources used in the good or service- is only one of the four components of provision. The other three are:

The important point to appreciate is that, in theory, it is not necessary that all of these functions are carried out by the same organization, or indeed by the same sector of the economy. The central government, local government, parastatals, CSOs, private sector firms or individuals, or a permutation of some or all of these could carry out each function.

Privatization
see also
- Outsourcing

Neoclassical economic theory suggests that the relationship between ownership and performance is tenuous; efficiency is seen mainly as a function of market and incentive structures, so it makes little difference whether a firm is privately or publicly owned as long as:

However, this set of necessary conditions is only rarely met or made to endure.

There are a number of modern amendments to neoclassical reasoning that attempt to establish a clearer relationship between ownership and efficiency. These come from public choice theory and the literature on principal and agents. Operationally, this reasoning says that private ownership will produce superior efficiency outcomes because of five factors:

It is possible to conceive of mechanisms to correct the perceived deficiency -without changing ownership. For example, if finding and rewarding excellent managers is the issue, enterprises could recruit outside the public sector, or even internationally, and offer incentive packages equal to private sector scales. If the soft budget constraint is the problem, governments could eliminate all guarantees and stipulate that public enterprises must turn to commercial capital markets and act, and be treated, like any private sector borrower. If exit is the constraint, governments could liquidate persistently poorly performing public enterprises.

If political interference is the difficulty, then the owner and the enterprise could sign a performance contract specifying the mutual obligations and responsibilities of the principal and the agent; or the owner could constitute and empower a new and more independent board of directors and give it explicit instructions to maximize commercial profitability. The fifth factor - better representation of the interests of capital - is more difficult to resolve without some change in ownership, or at least some privatization of management - through management contracts, leases, franchises, or concessions. But even here performance agreements and other mechanisms to create surrogate capitalists are imaginable.

However, the key argument for private ownership is political and organizational in character. The idea is twofold. First, as noted, most governments find it difficult if not impossible to apply the entire package of qualifying conditions that are essential for reforms short of ownership change to work. The landscape, particularly in developing countries is littered with partial attempts to impose reform where the government did not have the fortitude or the knowledge or the capacity to impose the whole of the reform package.

There are innumerable examples in which government owners kept prices for the products of supposedly reformed public enterprises too low to cover costs, out of fear of the political consequences of price increases. Governments may shut off direct budget flows to public enterprises, but few then go on to block concessionary transfers from the banking system. Governments grant operational autonomy to managers, but not with regard to hiring and firing, or plant location, or from whom to obtain inputs. The point is obvious: most governments have non-economic objectives for their public enterprise systems. While they want them to be profitable and productive, they are most often unwilling or incapable of allowing these commercial aims to take clear precedence over the non-commercial.

In the few cases in which governments do establish and maintain the precedence of commercial over non-commercial aims, the results are, as in China, very good. But they tend not to last. In most instances there is pronounced backsliding. It is clear that ownership matters - that it is a significant determinant of the profitability and productivity of an enterprise. Political and organizational factors are fundamental to the reason why. Ultimately, as Oliver Williamson is fond of saying, "politics trumps economics."

Adapted from briefing note by John Nellis, Manager, Private Sector Development, World Bank, from World Bank website.

Pro-poor fiscal policy
see also
- Fiscal policy

Budget preparation is central to an anti-poverty strategy and government spending should promote growth, but seek to do so in a way that will benefit the poor. Principles of pro-poor budgeting include:

Pro-poor governance

The poor benefit where there is consultation and accountability in the design and delivery of services. More generally, key capabilities that state agencies have to develop to provide pro-poor governance include:

Poverty line - absolute
see also
- social exclusion
- “dollar a day” poverty

Absolute poverty lines are based on the cost of purchasing a basket of good and services. This basket may consist only of food, for instance, representing the amount of calories sufficient for survival. A food-only basket is often used as a lower poverty line and food plus other items (clothing and shelter) as an upper poverty line. Often, those living below the lower poverty line are said to be living in extreme poverty.

Poverty line - relative

Relative poverty lines are defined with reference to the general standard of living. The line may be drawn as a fraction of the average income, or on the basis of a basket of goods and services that are judged as necessary for a “normal life” in a particular society.

Poverty monitoring

Information about trends in poverty, disaggregated by different groups, is important for accountability, planning, analysis and action. It is an essential component of a PRS and a PRSP.

Poverty profile

See PPA (Participatory Poverty Assessment).

PRGF (Poverty Reduction and Growth Facility)

This is the IMF’s successor facility to the ESAF for providing low interest loans to poor countries. Seventy seven low income countries are eligible for this facility, of which 36 had benefited by 2002.

PRS (Poverty Reduction Strategy)

In 1999, following the launch of the CDF, the World Bank and IMF proposed collaboration in the design of Poverty Reductions Strategies (PRSs) of heavily indebted poorer countries (HIPCs), with the intention of extending the process to other low-income countries. Four main components of anti-poverty collaboration are identified:

Finally, each PRS should embrace the “three pillars of sustainable development”: economic, social and environmental.

PRSP (Poverty Reduction Strategy Paper)
see also
- Interim PRSPs (I-PRSPs)
- Pro-poor fiscal policy
- SWAPs

PRSPs set out a country’s anti poverty strategy and have the purpose of mobilizing international development assistance and debt relief. Initially PRSPs were a requirement for HIPC debt relief, and now are required for all countries requesting concessional assistance from the World Bank. Typically they contain:

As of mid 2002, 14 countries had completed a full PRSP and 33 countries had prepared I-PRSPs out of the total 43 HIPC countries. For countries which had fallen behind the anticipated timetable for moving from I-PRSPs to full PRSPs, a common reason was “export shocks” in the form of sharp declines in agricultural commodity prices.

Price index (indices)

An index number showing how prices of a “bundle” of goods have changed from one period to the next. The index is weighted by the proportion of total expenditure taken up by the good in question.

There are a number of important price indices. A well known one is the consumer price index (CPI) which, in countries in which there are large gaps in living standards and in lifestyles, may have to be disaggregated into, for example “high income CPI”, “low income CPI”, “rural CPI” etc.

One price index which is often taken as the most general indicator of inflation in the economy is known as the “GDP deflator”. This is calculated to include all significant categories of goods and services in the economy, which are given a weight corresponding to their contribution to gross domestic product.

Quota

An imposed limit on the quantity of goods produced or purchased. Import quota can be used to restrict the purchases of goods from foreign origins.

Import quota have the effect of conveying economic protection (see above for discussion) to import-competing domestic producers, because domestic prices for the good in question are higher than they would otherwise be. The protective effects of import quota have similarities with those of tariffs (see below) but also differ in some important respects.

Real terms

“Real” is an adjective widely used in economics to indicate that the effects of general inflation have been taken into account in calculating changes over time in a particular price, or income, of a “macroeconomic aggregate”. “Real” is often used in distinction to “nominal” - or “current” - to indicate that the effects of inflation have been taken into account.

For example, if nominal GDP rose by 5 percent last year, while the broadest index of inflation (the GDP deflator - see price indices) rose 8 percent, then real GDP declined by 3 percent.

Another important concept is the real exchange rate, which is an index number used to gauge the effects on international competitiveness, over a given period, of: (i) exchange rate changes and (ii) differences in inflation between the country in question and its trade partners. For example, if Southland devalued its currency by 10 percent last year, experienced a rate of inflation of 15 percent, while the currencies of its trade partners remained unchanged and they experienced a rate of inflation of 5 percent, then Southland’s 10 percent gain in competitiveness is completely eroded by 10 percent extra inflation compared to that of trade partners. The real exchange has not changed.

Recurrent expenditure

See “government expenditure”.

Regional Economic Grouping/ Community

Regional Economic Groupings/Communities (REG/RECs) are groups of two or more territories (in most cases entire countries), which participate in joint regional economic integration processes defined by some kind of formal regional agreement. Generally, one considers five main types of REG/RECs:

Regional Indicative Programme (RIP)

The Regional Indicative Programme (RIP) is a programme agreed between the European Commission (EC) and one or more Regional Economic Groupings on the priorities and main areas in which the EC will provide technical assistance to the grouping. Following the approval of the RIP, detailed projects can be formulated and implemented.

Rule of Origin

A rule that allows to determine whether a product originates or not from a particular country. This is particularly important in regional groupings to determine whether the product originates from within the grouping or not.

Generally, the rule of origin is based on the proportion of value of a good that is actually generated in a particular grouping. The product is considered originating from the given grouping is this proportion is beyond an agreed level. For example, in the case of NAFTA, this level has been fixed at 60 percent.

Another rule can refer to the proportion of cost of production incurred in the member countries of the grouping.

SECAL (Sector Adjustment Loans)

Lending instrument formerly used by the World Bank and other agencies to provide balance of payments support to countries undergoing economic policy reform (or structural adjustment).

Sectoral

A term used loosely by economists either to indicate a particular segment of the economy (e.g., industry), or sometimes a level of analysis between “macro” and “micro”.

As an example of the latter, government subsidization of loans to farmers could be described as agriculture sector policy. If the effects of this policy will be mainly felt within the agriculture sector, then agricultural lending rates are not a “macro variable”, and government intervention in these is not a “macro policy”.

Sometimes, for convenience, sector policy is conceived of as policy under the control of line ministries. Thus agriculture sector policy is policy under the control of the Ministry of Agriculture. Within this Ministry, irrigation policy could be described as subsectoral policy.

SIP (Sector Investment Programme)
see also
- SWAPs

Programme spearheaded by the World Bank to take the place of its SECAL instrument. Under a SIP, development assistance is provided by the World Bank in the form of a Sector Investment Loan (SIL) for an integrated programme of reform whereby donor activity is coordinated in support of a common strategy. The SIL is disbursed regularly over a number of years against specific items of government expenditure within a specified expenditure programme. Other donors, particularly bilateral donors, may contribute to SIPs through grants. SIPs are intended to be sector-wide in scope and based on a clear strategy. Local stake-holders should have full charge of the programme with all main donors participating. While initially these programmes were designed to support investment, very rapidly, SIPs have also included the funding of regular activities of organizations operating in the agriculture sector.

SIPs have been presented as an attempt to avoid problems which have commonly been encountered with aid programmes to date, such as weak sectoral performance, poor institutional capacity and organizational chaos, criticisms that programmes are too donor-driven and what is perceived to be the fragmentation of government management of aid.

Social exclusion
see also
- Social inclusion

This concept helps understanding of processes, including social and political processes, which lead to poverty. For example, people who are poor may be excluded from land or employment, may have little or no formal education, and be politically powerless to change the situation.

Social inclusion
see also
- Social exclusion
- Farmers’ organizations

This refers to processes of removing barriers which prevent disadvantaged groups from accessing services such as health and education, and also to removing discrimination in labour markets.

Development agencies and CSOs may assist in this process by, for example:

Social protection

Assistance to those who are permanently or temporarily below the poverty line. Thus it requires policies to preserve the welfare of the long-term poor and also mechanisms to allow the temporarily poor to cope with shocks.

In poor countries informal social protection via the extended family and other community networks is often very important. But these mechanisms may be weakening with social change, and the impact of large shocks such as HIV/AIDS, war and famine. This may require a more active role by the state and CSOs in social protection.

SCC (South Corner Community)

A grouping of eight countries from the subregion, created in 1990, which aims at creating an economic community. The SCC has launched a number of programmes over the years which aim at enhancing cooperation among countries in the field of agricultural research and subregional food security.

Special Programme for Food Security (SPFS)

The Special Programme for Food Security (SPFS) is an FAO programme which aims to help those living in developing countries, in particular the low-income food deficit countries (LIFDCs) to improve their food security through rapid increases in food production and productivity, by reducing year-to-year variability in food production on an economically and environmentally sustainable basis and by improving people's access to food, in line with the 1996 World Food Summit Plan of Action.

The SPFS is carried out in two phases, Phase I, in which farmers and other local personnel are trained and provided with seeds, tools and the equipment that they need to enhance production by means of four complementary components:

Phase I is designed to be progressive and as experience is built up, activities can be progressively broadened to cover a greater area and range of components. Activities under this Phase can be extended in two ways:

Under Phase II it is planned that achievements from Phase I are built on by creating suitable conditions for large-scale replication of successful approaches involving three components:

  1. A programme for food security and agricultural policy reform
  2. An agricultural investment programme
  3. Feasibility studies of bankable projects.

An Evaluation of the SPFS has been carried out (see FAO Programme Committee, Eighty-seventh Session, Rome, 6-10 May 2002: Independent External Evaluation of the Special Programme for Food Security - downloadable from FAO website). To quote from the summary of this evaluation report:

The Strengths of the SPFS

The Evaluation Team found that the SPFS, as it currently exists, has a number of positive characteristics or strengths, not always shared by other donor and FAO-supported programmes, that deserve recognition and can be usefully built on in designing and implementing future SPFS related initiatives. The major ones are as follows:

Lessons from the Past

When the SPFS started it had what the Evaluation Team regards as a rigid and inflexible design. It also required that it initially be implemented in those areas where there was the potential for rapidly increasing production. These areas were characterized as being where there were irrigation possibilities. It was envisioned that the production focus would help solve food security problems both at the household and national levels. It soon became apparent that the early ‘micro’ oriented production focus was insufficient to ensure progress in solving the food security problem and that ‘meso’ and ‘macro’ type issues were important in enabling production increases to occur, and in ensuring benefits accrue to the producers. Thus, over time the implementation of SPFS has become ‘less rigid’ and ‘more flexible’. The Evaluation Team is in agreement with the changes.

Another problem of a more conceptual nature became apparent to the Evaluation Team during the visits to the case study countries. This relates to the likely tradeoffs between fulfilling the goals indicated in the guidelines for the SPFS for addressing food security at both the national and household levels. In general, the stipulation of initiating SPFS activities in higher potential areas is likely to be better in addressing the issue of improving national food security. Poverty, and hence individual household food insecurity, is likely to exist in such areas but by the same token it is likely to be less acute than in less promising agricultural areas. As a result, the sites selected for SPFS activities in the case study countries, have in general been of relatively high productivity, compared with the more marginal areas where the degree of malnourishment in rural areas is higher but the potential for increases in agricultural productivity are lower. Thus, although in the opinion of the Evaluation Team the areas selected for SPFS activities are likely to be the best as far as potentially improving national food security is concerned, in terms of improving individual household food security the impact of SPFS type activities was likely to have been higher in the marginal areas. This suggests trade-offs between the stated laudable goals of improving both household and national food security.

Another issue which became apparent during the visits of the Evaluation Team to the case study countries was that the time initially planned for the pilot part of Phase I of the SPFS, namely two or three years, was too short, and the selected sites too small, to have any major impact on production and food security strategies. Success of the SPFS type of approach is very dependent on the strength of the institutional structures, including extension, credit, input distribution and product marketing systems. Where there are deficiencies in this, it is very unlikely that a two to three year period will be sufficient to demonstrate impact. Evidence of implementing the expansion part of Phase I (i.e. extending SPFS activities to all agro-ecological zones of a country) was only found in Senegal, although plans do exist on paper for other countries. Also there is no country that has entered Phase II of the SPFS.

The Evaluation Team was somewhat surprized to note that the sets of technical guidelines designed to help in implementing the four components of the SPFS were not more frequently used in the field. Although there appear to be good reasons for this, the Evaluation Team believes that there would be merit in setting up a Guideline Technical Committee with the responsibility of rationalizing the approach to planning, producing, approving, and updating the guidelines as a whole. However, the Evaluation Team believes the Guidelines should be viewed as ‘guidelines’ and nothing more. Slavish adherence to them could be counter productive and inhibit creativity in designing/adapting the methodologies to local situations.

Systematic evidence of the degree of adoption/uptake of the technologies demonstrated by the SPFS was not available, partly because the SPFS has not generally collected such information and partly because many of the projects are ongoing, or have only recently ended. The Evaluation Team therefore had to form impressions from interviews with stakeholders during its field visits. Although there was some evidence of adoption by farmers who had participated directly in the demonstration of the technologies or had attended FFSs, and to a lesser extent by non-participant farmers during project implementation, there was relatively little evidence of continued use of technologies after project demonstrations, or of adoption by farmers who had had no association with SPFS. The Evaluation Team believes that the SPFS should make an effort to systematically document evidence of the uptake of the demonstrated technological packages.

The SPFS has made extensive use of subsidies to encourage technology adoption. This has taken two forms: providing inputs free to farmers and/or giving inputs at subsidized rates. This needs to be re-examined particularly since it does not bode well for the sustainability of the technologies after direct SPFS support to initiatives ceases. Giving inputs free should be discontinued and subsidized interest rates should only be used if it is part of national policy. Also, for sustainability reasons, credit should be administered by competent credit institutions rather than being administered directly by SPFS projects.

In general, to date, the impact of SPFS on national policies relating to food security, and on the donor community in terms of strategies for enhancing food security in Low Income Food Deficit Countries (LIFDCs) and resource mobilization for SPFS follow-up, has been limited.

SWAPs (Sector-wide approaches)
see also:
- ASIP

Sector wide approaches (SWAPs) a specific sector through a government-led process of policy reform, which can be carried out in partnership with the private sector and donors. SWAPs are often contrasted with project-level approaches, which may have only a localized impact, and may undermine the coherence of national policy.

In objectives of SWAPs include:

Stabilization (policy)

This term is used in market industrial countries to connote the problems of managing the fluctuations in economic activity associated with the business cycle. Hence it is concerned with stability in price and employment, and, hopefully, stable economic growth.

Some developing countries have experienced severe destabilization with, for example, very high inflation, intense balance of payments problems and declining output and employment. In this context, stabilization policy - often IMF supported - may be a very difficult matter. Often priority may be given to reducing inflation and improving the balance of payments by applying measures - such as tight fiscal and monetary policies - which have drastic short term effects on employment and incomes.

Structural adjustment

A term with a number of possible meanings. The meaning explained here came into vogue in the early 1980s - as a consequence of its use by the World Bank - to describe the medium to longer term aspects of programmes of economic policy reform in developing countries in the general direction of liberalization (see “economic liberalization” above).

Structural adjustment is sometimes distinguished from short term stabilization policy (see above) and is likely to encompass most sectors of the economy. Some lending instruments used by the World Bank and other agencies to support countries undergoing economic policy reform, are known as Structural Adjustment Loans (SALs). In contrast to SECALs (see above) SALs may require policy changes in a number of sectors.

Subsectoral

See “sectoral”.

Targeted interventions

Targeting seeks to direct resources to those most in need, whereas universal coverage provides benefits to the non-poor as well as the poor. There are arguments against targeting, which include administrative costs, the potential for unintentionally excluding some of the poor and/or also including better-off groups, and the political repercussions, especially from people located just a little bit above the threshold.

Approaches to targeting include:

Tariffs

A tax imposed on a good imported into a country. Tariffs have the effects of raising revenue for the government, conferring economic protection (defined above) on domestic import competing-industry and raising domestic prices.

The former two effects provide strong motives for the use of tariffs. But the negative effects of tariffs include not only higher domestic prices for the good subject to the tariff, but also discrimination against activities which use tariff protected inputs while selling into unprotected output markets. In developing countries, the agriculture sector often finds itself in this position, which can be summarized as tariff protection to industry indirectly discriminating against agriculture.

Tariff bindings

Maximum level of tariff that can be applied at any time and that has been notified to WTO. For the founding members of WTO, tariff bindings are based on the tariffs applied during the base period 1986-88, reduced according to the commitments made under the Agreement of Agriculture. For more recent members, the initial tariff level is negotiated on a case-by-case basis at the time of membership.

Terms of trade

A number of meanings:

The international terms of trade measures a relationship between the prices of exports and the prices of imports, this being known strictly as the barter terms of trade. In this sense, deterioration in the terms of trade could have resulted if unit prices of exports had risen less than unit prices for imports.

The inter-sectoral terms of trade refers to the terms of trade between sectors of the economy, e.g., rural & urban, agriculture and industry.

UNDAF (United Nations Development Assistance Framework)

The United Nations Development Assistance Framework is the planning framework for the UN system at the country level, and is prepared in a consultative manner on the basis of common objectives with government and other partners. Its objectives are to make the UN system coherent, responsive, strategically oriented, pro-poor, pro-environment, pro-women, effective and efficient.

Variable levy

This is a policy instrument which can be used to provide some economic protection for domestic producers and to stabilize domestic prices. It is often used for agricultural commodities, especially food commodities, the retail price of which is socially sensitive. The Common Agricultural Policy of the OECD makes use of variable levies, as do a number of other industrialized and developing countries. The levy is applied to imports at the rate of the difference between import prices and the - government set - domestic price.

As an example, the wholesale domestic price of wheat may be maintained by the government at $140 per tonne, while domestic production satisfies 70 percent of the domestic market, the world market price being $90 per tonne. In this case, the government would allow imports to satisfy 30 percent of market demand, levying a tax of $50 per tonne on imports. As long as the world prices are below the domestic price, domestic prices are de-linked from world prices and domestic farmers enjoy some protection.

World Bank

An international development bank founded in 1945 along with the IMF. It became part of the United Nations system in 1947. The Bank raises its funds by members’ contributions and borrowing in world capital markets.

The main purpose of the Bank is to provide loans to finance investment projects in member countries where private capital is not available on reasonable terms. Loans are generally long term, up to 30 years, and are made directly to governments, or to private firms with the government as guarantor.

Policy based lending (a generic term for programme finance to support countries undergoing economic policy reform) was a new departure for the Bank at the beginning of the 1980s. Although policy-based lending rose in relative importance through the 1980s, it is still, in some quarters, regarded as a subsidiary and (hopefully) temporary activity, and a diversion from the Bank’s main business of lending for investment.

World Food Summit 1996

The 1996 World Food Summit, held in Rome confirmed a near-consensus on the main features of the global problem of food insecurity as it now exists. Food insecurity was recognized as the simultaneous achievement of food availability, stability of supply and access for all.

The Summit committed itself to a measurable and monitorable goal: “.. to eradicate hunger in all countries, with an immediate view to reducing the number of undernourished people to half of their present level no later than 2015.”

The resulting Plan of Action identifies seven areas for vital official commitment:

WTO - General

The World Trade Organization came into being in 1995. One of the youngest of the international organizations, the WTO is the successor to the General Agreement on Tariffs and Trade (GATT) established in the wake of the Second World War. The purpose of the WTO is to create a strong and prosperous international trading system.

The multilateral trading system that was originally set up under GATT is well over 50 years old. The past 50 years have seen an exceptional growth in world trade. Merchandize exports grew, on average, by 6 percent annually. Total trade in 2000 was 22-times the level of 1950.

The system was developed through a series of trade negotiations, or rounds, held under GATT. The first rounds dealt mainly with tariff reductions but later negotiations included other areas such as anti-dumping and non-tariff measures. The last round - the 1986-1994 Uruguay Round - led to the WTO’s creation.

WTO has more than 140 members, accounting for over 97 percent of world trade. Over 30 others are negotiating membership. Decisions are made by the entire membership. This is typically by consensus. A majority vote is also possible but it has never been used in the WTO, and was extremely rare under the WTO’s predecessor, GATT. The WTO’s agreements have been ratified in all members’ parliaments.

The WTO’s top level decision-making body is the Ministerial Conference which meets at least once every two years. Below this is the General Council (normally ambassadors and heads of delegation in Geneva, but sometimes officials sent from members’ capitals) which meets several times a year in the Geneva headquarters. The General Council also meets as the Trade Policy Review Body and the Dispute Settlement Body.

Numerous specialized committees, working groups and working parties deal with the individual agreements and other areas such as the environment, development, membership applications and regional trade agreements.

In 2000, new talks started on agriculture and services. These have now been incorporated into a broader agenda launched at the fourth WTO Ministerial Conference in Doha, Qatar, in November 2001.

The agenda adds negotiations and other work on non-agricultural tariffs, trade and environment, WTO rules such as anti-dumping and subsidies, investment, competition policy, trade facilitation, transparency in government procurement, intellectual property, and a range of issues raised by developing countries as difficulties they face in implementing the present WTO agreements.

WTO - Developing County Issues
see also
- Doha Development Round

Over three-quarters of WTO members are developing or least-developed countries. All WTO agreements contain special provisions for them, including:

The 2001 Ministerial Conference in Doha set out tasks, including negotiations, for a wide range of issues concerning developing countries. Some people call the new negotiations the Doha Development Round.

Before that, in 1997, a high-level meeting on trade initiatives and technical assistance for least-developed countries resulted in an “integrated framework” involving six intergovernmental agencies, to help least-developed countries increase their ability to trade, and some additional preferential market access agreements.

A WTO committee on trade and development, assisted by a subcommittee on least-developed countries, looks at developing countries’ special needs. Its responsibility includes implementation of the agreements, technical cooperation, and the increased participation of developing countries in the global trading system.

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